China Securities Regulatory Commission, Guidelines for Regulation of the Direct Investment Business of Securities Companies

(4) for the purpose of cash management, investing idle funds in securities with relatively low risks and relatively high liquidity such as treasury bonds, investment-grade corporate bonds, money market funds, central bank bills offered to the public in accordance with law, as well as securities investment funds, pooled asset management schemes and special asset management schemes, provided that risks are effectively managed and liquidity is maintained (Article 2).

Securities companies that establish direct investment subsidiaries shall fulfil the following requirements (among others):

(i) the aggregate amount it invests in the Direct Investment Subsidiary, direct investment fund, industrial fund and fund management institution may not exceed 15% of its net capital, and shall deduct the relevant investment amount when calculating the net capital in accordance with the relevant provisions;

(ii) it shall be independent from the Direct Investment Subsidiary (and vice versa) in terms of personnel, organs, finance, assets, management and business operation, and may not, in violation of regulations, interfere with the investment decisions of the Direct Investment Subsidiary; and

(iii) where it is appointed to be the guidance institution, financial advisor, sponsor or lead underwriter for an enterprise that intends to be listed, the Direct Investment Subsidiary, direct investment fund, industry fund and fund management institution may not invest in the said enterprise from the date of conclusion of the relevant appointment agreement or the date of actual commencement of the relevant business.

Where a securities company has a controlling share in other securities companies, one Direct Investment Subsidiary may only be established by the parent company (Article 3).

The funds of a direct investment fund shall be raised in a non-public format. The targets of fund raising shall be limited to institutional investors, and the number of investors shall be no more than 50. The use of advertisements, public inducements or disguised public offers for raising funds is not permitted (Article 6).